Satellite Dish Components : California Amplifier in Technology Race
California Amplifier, a Camarillo manufacturer of components for satellite-dish antenna systems, is fighting battles endemic to young high-technology companies nowadays.
It is getting battered by offshore competition, so much so that the company has lost money in three of its past four quarters. Technology is changing so fast that the company must race to keep up, often having to dump old products. And firms that package the final product are pressuring suppliers such as California Amplifier to hold prices down so they can sell more systems.
In the meantime, there’s no guarantee that backyard satellite dishes will ever really catch on. Many potential customers worry about the legality of tapping into satellite signals, and the issue still is being debated in Congress.
All this falls in the lap of the company’s chairman, Donald W. Fuller, 54, a computer company refugee who has been at his post only since February and will become president at the end of this month. The man who founded the company--yes, in his garage--Jacob Inbar, 36, is about to leave the presidency to pursue other interests, he said.
Signal Amplifier
Four-year-old California Amplifier’s main product is a small component that magnifies the weak signal bounced off a satellite. The amplified signal is sent to other components, which process it so it can be shown on a television screen.
The company also makes switches for hooking a single dish to several television sets, and custom-made amplifiers for the military.
Taking the helm of California Amplifier will be a lot like running a computer company, Fuller said, explaining, “We have to grind out widgets cheap while keeping the technology ahead of offshore competitors.”
Doron Kochavi, who follows the company for Wedbush Noble Cooke, a Los Angeles brokerage, called Inbar “a brilliant engineer” who “realized he had to let someone more experienced in business take over. He was very brave to recognize his limits.”
Dishes Common Sights
Fuller comes from Tecstor, a $10-million-a-year disk-drive company based in Huntington Beach, where he has been chairman and chief executive officer and will remain on the board of directors. For 14 years, until 1983, he ran Microdata, a $160-million McDonnell Douglas subsidiary based in Irvine, which makes automated data-processing systems.
Although satellite dishes have become common sights most communities, Fuller is entering an industry that is barely a decade old.
From the start, the dish systems were popular in places such as the wheat fields of Kansas and the tundra of Alaska--or the canyons around Los Angeles. Starved for clear television reception and program selection in places where no cable company will go, people in remote areas have been willing to pay thousands of dollars for satellite hookups.
But, as with other new technologies, most people who don’t need it--those who can get cable or are satisfied with their TV’s rabbit ears--won’t buy satellite systems until the price is right.
Competition has been bringing down the price. Five years ago, a home “Earth station” could cost as much as $25,000. A similar system costs $1,500 today, and simpler kits are now available for as little as $399, about the price of a videocassette recorder.
Component prices also have plummeted. An amplifier that cost a distributor $800 in 1981 goes for about $80 today. Naturally, that’s hurt California Amplifier.
During its first quarter ended May 31, the company lost $246,000 on $2.9 million in sales. For the corresponding quarter a year earlier, the company reported net income of $1.1 million on $6.1 million in sales.
For its last fiscal year ended February 28, the company reported a loss of $634,000 on nearly $19 million in sales. During its previous fiscal year, California Amplifier reported net income of $2.4 million on sales of $15.1 million.
The number of amplifiers it produced skyrocketed over that period. In fiscal year 1984, the company sold 60,000 units. In its last fiscal year, it sold 120,000 units, and Inbar said he expects that number to double again for this fiscal year.
The company employs 260 at its plant and offices in a Camarillo industrial park, including 50 in the military division.
Largest Shareholder
Inbar remains the largest shareholder, with 25.4% of the stock. Fuller owns no California Amplifier stock, although he said his contract calls for him eventually to get a 5% stake.
Inbar said the company made a profit for the quarter ended Aug. 31. Fuller won’t make any predictions about the quarter before the accountants submit their report, but said the company should be on the “verge of profitability sometime soon.”
California Amplifier began diversifying last year to help improve its performance. Its amplifiers for the military, also used for satellite communications systems, offer less pricing pressure, Fuller said.
During the company’s last fiscal year, 20% of its revenues came from military contracts, but California Amplifier lost a proportional amount of money on those, too, Fuller said. However, the company is reimbursed for research costs on military projects, and the lessons learned in the military lab can be used down the hall in the commercial plant, he noted.
Packages for Retailers
California Amplifier sells parts to large distributors, who package satellite-dish systems for retailers. The company also markets its amplifiers for dish systems to companies such as Radio Shack, which put their own labels on the equipment.
It also sells its amplifiers to cable television system operators, who need to receive satellite signals with their own dish equipment before they can send them out through cables.
Cable operators and home Earth stations receive programs the same way. A television signal from a ground transmitter is bounced off a satellite 22,300 miles above the Equator, and sent back to Earth, where it can be collected by the dish.
Microwaves landing anywhere on the parabolic surface of the dish are reflected to a single point above its center, a funnel-like device called a “feedhorn.” The feedhorn focuses and magnifies the waves, the first step in converting a weak and dispersed signal from space into 24 television channels from a single satellite.
Low-Noise Amplifier
From the feedhorn, the wave passes to the low-noise amplifier, where it is strengthened further. The signal is passed to a “down converter,” which lowers the extremely high frequency so the signal can be sent through thinner and cheaper cable.
The down converter sends the signal to a receiver connected to the television set. The receiver tunes in the channels.
California Amplifier traditionally has made the amplifier unit. But its newer units, introduced just three months ago, combine the amplifier with the down converter. Fewer parts mean easier installation and, again, lower prices.
The company has continually made parts smaller to keep its products competitive. The original amplifier part is about twice the size and weight of one of the company’s newer components. With constant changes in technology, it is difficult to get rid of old parts, Fuller said.
Among the customers for the parts is Janeil Corp. of Reseda, which packages systems for retailers, including the Price Club, and had $31 million in sales its last fiscal year.
‘More Than Competitive’
“They’ve kept their technology up to date while holding prices down,” Denis Dushane, president of Janeil, said of California Amplifier. “They’re more than competitive with the Japanese.”
Amplica, a Newbury Park company that sells dish systems to Curtis Mathes, designs its own components and has them made in Taiwan. “The problem at California Amplifier is offshore sources can supply parts at comparable or lower prices,” said William E. Wilson, president of Amplica.
Janeil expects its revenues to double this year, to $60 million. Amplica, a wholly owned subsidiary of Comsat, does not release earnings figures. Comsat, founded by Congress in 1963, is the U.S. representative to Intelsat, the international satellite consortium.
Other competition comes from big-name electronics manufacturers such as Uniden, Kenwood and Panasonic.
But California Amplifier has hurdles more formidable than foreign competition. Satellite dishes still have to become more accepted in the domestic market, Fuller acknowledged. “A lot of people are put off by anything more complicated than pushing a button or two,” he said.
Public Concerned
Most everyone in the industry agrees that the public is concerned about the legality of the backyard systems. People wonder if they are breaking the law tuning in to satellites, or if it is as much their right as switching on the radio.
The answer is that it is legal to receive a signal, but illegal to decode a scrambled signal with a “pirate” decoder.
Congress laid down the rules in October, 1984, with the Cable Communications Policy Act, which made it legal for private citizens to own and operate Earth stations. The act made viewing legal until programmers either scramble their signals, which companies such as HBO and Showtime have said they will do, or come up with ways to enable Earth-station owners to pay for the services.
Three bills are pending in Congress on scrambling. One in the House proposes a moratorium on scrambling. The others, in the House and Senate, propose that services not charge home dish-antenna users more than cable users would pay--about $10 a month per premium service.
“The name of the game is no longer ripping off HBO,” Fuller said. “When those channels get scrambled, people with dishes are going to have to pay for the service. But the vast majority of satellite channels are advertiser-supported, and they’ll never scramble.”
May Need Several Units
The equipment to unscramble the systems may cost several hundred dollars. And viewers may have to buy several units if programmers do not standardize a scrambling system.
But most of the 1.5 million dish-antenna systems in the United States were not bought by people primarily worried about saving money, said Chuck Hewitt, executive vice president for the Society for Private and Commercial Earth Stations, or SPACE, based in Alexandria, Va.
“Where people are able to get cable, they choose dish systems for the better variety of programming,” Hewitt said. “A lot of people are dissatisfied with their local cable systems.”
Nevertheless, some communities would prefer that their residents use cable. For example, in Westlake Village, all external antennas, including those for television or FM radio reception, are banned by ordinance. “The general feeling is, they’re unattractive,” said Bob Theobald, the city’s planning director.
Warning of Slump
Fred Finn, a Washington attorney representing SPACE, said many municipalities act against Earth-station owners because they have already cut deals with the cable companies. “If the town had its streets torn up for cable and is waiting for its per-subscriber percentage, it’s in its interest to keep dishes out,” he said.
Fuller said that, in the long run, he hopes to find a niche for California Amplifier as an original equipment manufacturer in deals similar to the one with Radio Shack. But he said he doesn’t expect to become a full-system distributor.
He said American manufacturers still are ahead of foreign competition, and can maintain the lead by moving engineering advances onto the production line as quickly as possible. But Fuller would not rule out eventually having California Amplifier’s designs manufactured abroad.
Again likening the dish-antenna business to the computer industry several years ago, Fuller predicted: “We’re about to see a boom. Our real challenge may well be avoiding the slump that could follow.”
